2014 (5) TMI 210 - HC - VAT and Sales Tax

Taxable turnover Whether the expenses incurred in commissioning imported machinery by a dealer for its customer form part of the cost of machinery in order to attract tax liability under Tamil Nadu General Sales Tax Act, 1959 Expenses of Commissioning import of machinery - Held that - This court failed to understand how this aspect of rendering of technical assistance would form part of the agreement of purchase of the machinery - So long as the payment made had nothing to do with the transfer of property in any goods, and that the payment made was not on sale of any goods, payment on labour charges has always been held as outside the purview of the Act for the purpose of taxing it. However, where the consideration paid in an indivisible contract could not be apportioned and the cost of materials and labour charges and the divisibility was not possible, the courts took the view that such an indivisible contract would not be brought to tax, but where indivisible contract had divisibility in it, the payment made could be ascertained as one falling for labour charges and other for the goods, the jurisdiction to assess the sale provision was always there - 46th amendment made it possible for the State to treat the indivisible contract as a deemed sale and that by legal fiction, the turnover relating to labour was separated for the purpose of assessment of the purchase in goods - Even under the amended provision, labour would never form part of the turnover for the purpose of assessment - Since the payments were made only for technical services and to meet the expenditure of travel and stay, Tribunal order is confirmed - Consequently, Tax Revision is rejected Decided against Revenue.

Summary

Issues Involved:
- Appeal against Sales Tax Appellate Tribunal's order for the assessment year 1993-94.
- Whether expenses incurred in commissioning imported machinery by a dealer for its customer form part of the cost of machinery to attract tax liability under Tamil Nadu General Sales Tax Act, 1959?

Detailed Analysis:

Issue 1: Appeal Against Tribunal's Order
The Revenue appealed against the Sales Tax Appellate Tribunal's order for the assessment year 1993-94. The dispute revolved around the turnover of expenses amounting to Rs.14,62,403 incurred by the dealer for fine-tuning imported machinery. The Assessing Officer initially assessed the charges as part of machinery sale, hence assessable at 8%. The Appellate Assistant Commissioner highlighted the lack of agreement copy regarding the services rendered, leading to uncertainty. The Tribunal, as a fact-finding authority, noted that relevant documents were available and concluded that remanding the matter for re-examination was unnecessary.

Issue 2: Tax Liability on Commissioning Expenses
The core issue was whether expenses incurred in commissioning imported machinery formed part of machinery cost for tax liability under the Tamil Nadu General Sales Tax Act, 1959. The Tribunal found that the dealer had a separate agreement for commissioning services after machinery installation. The Revenue argued that these expenses should be part of the machinery sale, thus taxable. However, the Court emphasized that payments for technical services and related expenses, not involving goods transfer, were traditionally outside the tax purview. The Court highlighted the principle that labor charges, when separate and indivisible from goods sale, were not taxable. The Court upheld the Tribunal's decision, stating that the payments were solely for technical services and travel/stay, affirming that labor charges do not constitute turnover for tax assessment purposes.

In conclusion, the Court rejected the Revenue's appeal, affirming the Tribunal's decision based on legal provisions and factual findings. The Court emphasized that payments for technical services and related expenses did not constitute part of machinery sale turnover for tax assessment. The Court upheld the Tribunal's decision, noting the absence of grounds to set aside the order solely based on the lack of remand by the Tribunal. Consequently, the Tax Case (Revision) was rejected with no costs incurred.